zerohedge.com / by Tyler Durden / Sep 30, 2016 11:35 AM
Two days ago we noted that as we approached the quarter end’s window dressing, when the financial system’s balance sheet most closely approaches what it would be like without Fed backstops if only for regulatory purposes, General Collateral – a closely followed indicator of dollar funding costs and thus of cash availability – spiked to the highest in 7 years, surging to 0.85% after opening the day at 0.68%.
We expected this number to keep rising as we neared the Sept 30 quarter end, and sure enough it did not disappoint: as SMRA points out, as of this morning, the overnight general collateral rate has soared to 1.25% – indicative of where funding would be had the Fed hiked not once but three times in 2016 – from an average of 0.89% yesterday. This is the highest that the GC rate has been since the financial crisis.
For those unfamiliar with GC repo, here is a quick primer from the ICMA:
General collateral or GC is the range of assets that are accepted as collateral by the majority of intermediaries in the repo market, at any particular moment, at the same or a very similar repo rate — the GC repo rate. In other words, the repo market as a whole is indifferent between general collateral securities. They are close substitutes for each other. GC assets are high quality and liquid, but none is subject to exceptional specific demand compared with very similar assets. The GC repo rate is therefore driven purely by the supply of and demand for cash (not by the supply of and demand for individual assets). In other words, GC repo can be said to be cash-driven. As such, the GC repo rate should be closely correlated to other money market rates, eg LIBOR, EURIBOR, etc, although trading at a spread representing the lower credit and liquidity risks in repo.
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